How to Deduct a Car Donation from Your Taxes
After you make a car donation to charity, you may have the right to claim part of the value of the donation on your taxes. The amount you can deduct and whether you can claim the deduction at all is based on a number of factors. If the tax deduction is a factor in deciding whether you'll donate a car to charity and to which charity you'll donate, then you should be fully aware of the IRS rules regarding car donations and taxes.
Who Qualifies for the Deduction?
In order to qualify to take a tax deduction for charitable donations,
* You must itemize tax deductions on your return
* The deduction cannot exceed one-half of your adjusted gross income
* The vehicle must be manufactured primarily for use on public streets, roads or highway, or be a boat or airplane
* You must donate your car to a qualifying charity
How Much Can You Deduct for Your Car Donation?
The actual amount of the deduction that you make depends upon a number of factors. Before 2005, the IRS allowed car donors to deduct the "fair market value" of the donated car from their income taxes. In 2005, the IRS tightened the restrictions on tax deductions for motor vehicle contributions. As of 2010, if you donate your car to charity, the following rules apply:
* The car you donate cannot be one that is held by you primarily for sale to others, such as the inventory of a used car lot
* If the charity to which you donate the car sells the car, your deduction may not exceed the gross proceeds of the sale.
* If the vehicle sells for $500 or less, you may deduct $500 or the fair market value of the car on the date that you make the contribution, whichever is lower.
* You must meet specific record keeping and filing requirements in order to take a deduction that exceeds $500.
* If the charity gives or sells the vehicle directly to a needy individual at a price significantly below the fair market value as part of the charity's stated mission, you may be able to deduct the vehicle's fair market value on the date of the donation.
* If the charity states that it intends to make a material improvement to the car before selling the vehicle, you may be able to deduct the fair market value of the car.
* If the charity intends to keep the car and use it as part of its mission for a significant length of time, you may be able to deduct the fair market value of the car.
Recordkeeping Requirements
When you donate your car to charity, the charity must provide you with a written acknowledgement of your contribution. The acknowledgement must include the name of the charity, a description of the vehicle and a statement of one of the following:
* A statement that no goods or services were provided to you in return for your donation
* A description and value of any goods or services that were provided to you in return for your donation
* A statement that the goods or services provided to you consisted entirely of intangible religious benefits
Further record keeping and filing requirements may apply to claiming a deduction for your car donation. If your contribution is worth more than $500, you may want to check with your accountant to determine the best way for you to contribute your car to charity.